2020 End of Year Plan Sponsor “To Do” List (Part 1) Health and Welfare

Snell & Wilmer

We are pleased to present our annual End of Year Plan Sponsor “To Do” Lists. This year, we present our “To Do” Lists in four separate Employee Benefits Updates. This Part 1 covers year-end health and welfare plan issues. Parts 2, 3, and 4 will cover executive compensation issues, qualified plan issues, and cost-of-living increases, but not necessarily in that order. We are publishing Part 1 to coincide with fall open enrollment. We expect to publish the other Parts later this year. Each Employee Benefits Update provides a checklist of items to consider before the end of 2020 or in early 2021. We hope these “To Do” Lists help focus your efforts over the next few months and heading into 2021.

2020 has been an interesting year for employer group health plans. Amidst a once in a 100-year pandemic, many employers found themselves having to furlough and lay-off employees due to the related economic downturn. As a result, many Americans found themselves without health and life insurance when they needed it most. You might say the pandemic shined a light on the weaknesses inherent in our employer-based health and welfare benefit system.

While employers were fighting to keep their businesses afloat, they found themselves having to deal with numerous COVID-19 employee benefits issues, including but not limited to: the nuances of free COVID-19 testing; whether to provide free COVID-19 treatment; whether to provide free or reduced-cost telehealth and other remote care as a way to encourage employees to avoid in-person health care visits; whether to allow employees to make mid-year changes to their health insurance and health flexible spending accounts (“Health FSAs”) given the many changes in employment status employees were experiencing (e.g., working from home, furloughs, and layoffs); and how to administer, and notify employees about, important COBRA, special enrollment, and claims and appeals deadline extensions that apply during the pandemic. In addition, there were numerous non-COVID-19 health and welfare changes, such as the extension of the Patient-Centered Outcomes Research Institute (“PCORI”) fees, the repeal of the Cadillac tax, and a landmark decision by the United States Supreme Court (“Supreme Court”) that treats sexual orientation and gender identity as protected under Title VII of the Civil Rights Act.

In the midst of all this, the Trump Administration continues to argue that the whole of the Affordable Care Act (“ACA”) should be declared unconstitutional -- the argument being that when Congress repealed the tax on the individual mandate, effective January 1, 2019, the rest of ACA could not function without the tax. However, in the more than 20 months since the tax was repealed, some argue that ACA appears to be functioning just fine, and in some ways has strengthened. The passage of time alone could save ACA by providing hard evidence that ACA functions fine without the tax on the individual mandate. The Supreme Court will hear oral arguments in the case on November 10, 2020, a mere week after the presidential election.

Depending on the outcome of the election, 2021 could bring significant changes to our employer-based health care system, but for now, ACA remains the law of the land and employers must continue to comply with its requirements.

Part 1 - Health and Welfare Plans “To Do” List

  • Consider Health and Welfare COVID-19 Issues: The COVID-19 pandemic and the federal government’s response have transformed the 2020 employee benefits landscape. These changes will extend into 2021, depending on how long the COVID-19 public health emergency lasts. Below are some plan design and plan administration issues on which employers may want to focus:
    • COVID-19 Testing: Pursuant to the “Families First Coronavirus Response Act” (“FFCRA”) Section 6001(a) and FAQs Parts 42 and 43, group health plans must cover (without cost-sharing, prior authorization, or medical management requirements) COVID-19 testing and items and services furnished to an individual during health care provider office visits (including in-person and telemedicine visits), urgent care center visits, and emergency room visits that result in an order or administration of COVID-19 testing or an evaluation of such individual for purposes of determining the need for such testing. These rules are nuanced and do not provide that all COVID-19 testing is free of charge. For example, these rules do not require COVID-19 testing for return to work purposes to be free of charge. For more information see our SW Benefits Updates: “COVID-19: Employer Group Health Plan Changes to Help Employees and Stop the Spread of the Virus,” “The CARES Act – What Are the Health and Welfare Plan Issues to Consider?” and “Free COVID-19 Testing Extended for Another 90 Days.” Also see our March 20, 2020 SW Benefits Blog, “Trump Signs Act Mandating Group Health Plans Cover COVID-19 Testing For Free.”
    • COVID-19 Vaccinations: Pursuant to the “Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Act”) Section 3203, group health plans must eventually cover, without cost-sharing, any item, service, or vaccine intended to prevent or mitigate coronavirus if such item is appropriately recommended by the U.S. Preventive Services Task Force or the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention. This requirement will take effect 15 business days after such a recommendation is made. For more information see our April 1, 2020 SW Benefits Update, “The CARES Act – What Are the Health and Welfare Plan Issues to Consider?”
    • COVID-19 Treatment: To date, Congress has failed to pass any legislation requiring that COVID-19 treatment be provided free of charge. However, for group health plans that decide to voluntarily do so, IRS Notice 2020-15 provides welcome relief for high deductible health plans (“HDHPs”). For more information see our March 16, 2020 SW Benefits Update, “COVID-19: Employer Group Health Plan Changes to Help Employees and Stop the Spread of the Virus.”
    • Telemedicine: Pursuant to the CARES Act Section 3701 and IRS Notice 2020-29, group health plans may, but are not required to, cover telemedicine and other remote care services free of charge before the required deductible is met with respect to services provided on or after January 1, 2020 with respect to plan years beginning on or before December 31, 2021. For more information see our April 1, 2020 SW Benefits Update, “The CARES Act – What Are the Health and Welfare Plan Issues to Consider?,” and our June 22, 2020 SW Benefits Update, “COVID-19 and Cafeteria Plans – To Amend or Not to Amend?”
    • HDHP Issues: Under long-standing Internal Revenue Service (“IRS”) guidance, only preventive care can be offered free of charge to participants in an HDHP prior to satisfying the applicable deductible. Normally, if an HDHP provides non-preventive care free of charge before the minimum deductible is satisfied, the plan will fail to be an HDHP under Internal Revenue Code (“Code”) Section 223, disqualifying individuals covered by the plan from being eligible to make or receive tax-favored health savings account (“HSA”) contributions. However, the IRS clarified in Notice 2020-15 that HDHPs may waive minimum deductibles for COVID-19 testing and COVID-19 treatment without jeopardizing their status. In addition, Section 3701 of the CARES Act allows HDHPs to waive deductibles for telehealth visits, and other remote care for all medical care, not just COVID-19 testing or treatment. Notice 2020-29 clarifies that this provision of the CARES Act applies with respect to services provided on or after January 1, 2020 with respect to plan years beginning on or before December 31, 2021. For more information see our March 16, 2020 SW Benefits Update, “COVID-19: Employer Group Health Plan Changes to Help Employees and Stop the Spread of the Virus,” and our April 1, 2020 SW Benefits Update, “The CARES Act – What Are the Health and Welfare Plan Issues to Consider?”
    • COVID-19 Deadline Extensions: Pursuant to the Department of Labor (“DOL”) and IRS Joint Notice, Notice 2020-01, FAQs, and a News Release, ERISA health and welfare and retirement plans must extend various deadlines including: (1) the 60-day deadline for an individual to elect COBRA coverage; (2) the 45-day deadline for an individual to make an initial COBRA premium payment; (3) the 30-day deadline for an individual to make a subsequent monthly COBRA premium payment; (4) the 60-day deadline for an individual to notify the plan of certain COBRA qualifying events (i.e., divorce or a dependent child ceasing to be a dependent child); (5) the deadline for a COBRA qualified beneficiary to notify the plan of a determination of disability; (6) the 14-day deadline for plan administrators to provide COBRA election notices to qualified beneficiaries; (7) the 30-day special enrollment period for individuals who lose health coverage; (8) the 30-day special enrollment period for individuals who gain new dependents; (9) the 60-day special enrollment period for individuals who lose or gain eligibility for Medicaid or children’s health insurance program; (10) the deadline for an individual to file a benefit claim under ERISA’s claim procedures; (11) the deadline for an individual to appeal an adverse determination under ERISA’s appeal procedures; (12) the 4-month deadline for an individual to request an external review after receipt of an adverse benefit determination or final internal adverse benefit determination; and (13) the 4-month deadline (or, if later, 48 hours following receipt of notice of an incomplete request) for an individual to file information to perfect a request for external review of a benefit determination upon learning the request was incomplete. Employers may want to carefully consider how and when to communicate these important changes to employees. For more information on these deadline extensions see our March 16, 2020 SW Benefits Update, “COVID-19: Employer Group Health Plan Changes to Help Employees and Stop the Spread of the Virus.”
    • Cafeteria Plan Changes: Pursuant to IRS Notice 2020-29, employers may, but are not required to, amend their cafeteria plans for the 2020 plan year to allow employees to: (1) make a new election on a prospective basis, if the employee initially declined to elect health coverage sponsored by the employer; (2) revoke an existing election and make a new election to enroll in different health coverage sponsored by the employer on a prospective basis; and (3) revoke an existing coverage election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.
    • Also, in regard to Health FSAs and dependent care assistance programs (“DCAPs”), employers may, but are not required to, amend their cafeteria plans for the 2020 plan year to allow employees to: (1) revoke Health FSA/DCAP elections on a prospective basis; (2) make new Health FSA/DCAP elections on a prospective basis; or (3) decrease or increase existing Health FSA/DCAP elections on a prospective basis.
      Furthermore, IRS Notice 2020-33, permits employers to increase the Health FSA carryover limit for a plan year starting in 2020 to $550 (from $500).
    • For more information see our June 22, 2020 SW Benefits Update, “COVID-19 and Cafeteria Plans – To Amend or Not to Amend?”
    • Inclusion of Certain Over-The-Counter Medical Products as Qualified Medical Expenses: Pursuant to Section 3702 of the CARES Act, HSAs, Archer medical savings accounts, Health FSAs, and health reimbursement arrangements (“HRAs”) may reimburse over-the-counter medical products and menstrual care products (i.e., a tampon, pad, liner, cup, sponge, or similar products). Depending on plan language, employers may have to amend their plans to permit these reimbursements. For more information see our April 1, 2020 SW Benefits Update, “The CARES Act – What Are the Health and Welfare Plan Issues to Consider?”
    • Consider Application of Employee Retention Credits (“ERCs”): The CARES Act provided for an ERC designed to encourage employers to retain workers during the COVID-19 crisis. As described in our May 29, 2020 SW Benefits Update, “IRS Issues Revised Guidance on Employee Retention Credits and Qualified Health Plan Expenses, Offering Relief for Employers that Furloughed Workers,” the ERC permits eligible employers to claim a refundable tax credit equal to 50% of “qualified wages” paid to employees in a given quarter of 2020. For this purpose, an “eligible employer” is any employer that carried on a trade or business during 2020 and either: (1) fully or partially suspended operations in any quarter of 2020 because of a government order limiting commerce due to COVID-19; or (2) experienced a significant decline in gross receipts during the quarter. Employers that received a loan under the Paycheck Protection Program are not entitled to receive ERCs. The credits are based on “qualified wages,” which include cash compensation paid between March 13, 2020 and December 31, 2020 and qualified health plan expenses. “Qualified health plan expenses” are those amounts paid or incurred by the employer to maintain a health plan, to the extent such amounts are excluded from an employee’s gross income. Employers – especially those that did not pay wages to furloughed employees, but continued and paid for some or all employee health insurance during the period of the furlough – may wish to consider whether they are entitled to receive ERCs.
    • Emergency Family Medical Leave: FFCRA includes the Emergency Family and Medical Leave Expansion Act, which generally amends the Family Medical Leave Act (“FMLA”) to temporarily require certain employers to provide up to 12 weeks of leave, some of it paid, if an employee is unable to work or telework because the employee has to care for his or her son or daughter due to the closure of the child’s school or place of care, or the unavailability of a childcare provider due to a COVID-19 emergency that is declared by a federal, state, or local authority (“Emergency FMLA”). Emergency FMLA generally applies from April 1, 2020 through December 31, 2020 to: (1) private sector employers with less than 500 employees; and (2) certain public sector employers. As explained in FFCRA: Questions and Answers, Q/A-30 available here, employers subject to these rules must maintain an employee’s group health plan coverage during Emergency FMLA on the same conditions as if the employee had continued to work. As a result, private employers with less than 500 employees may need to amend their group health plans to reflect this requirement to continue group health coverage. For more information see our April 1, 2020 SW Benefits Update, “The CARES Act – What Are the Health and Welfare Plan Issues to Consider?”
    • Plan Amendments, Summaries of Material Modifications (“SMMs”), and Summaries of Benefits and Coverage (“SBCs”): Employers that make changes to their health and welfare plans, whether required by law or voluntary, must remember to adopt appropriate plan amendments and provide participants with SMMs explaining changes. Generally, it is important to provide SMMs as soon as possible so participants are aware of the benefits to which they are entitled.
  • ACA Lawsuit: On March 2, 2020 the Supreme Court announced that it will hear California v. Texas, formerly known as Texas v. United States of America. At issue is a ruling by the U.S. District Court for the Northern District of Texas that the entire ACA is unconstitutional as a result of the repeal of the tax on the individual mandate, which took effect January 1, 2019. The Fifth Circuit, on appeal, affirmed the individual mandate was unconstitutional without the tax, but remanded the case to the District Court for a more thorough analysis on the severability of the remaining ACA provisions. The case was subsequently appealed to the Supreme Court. The Trump Administration is backing efforts by a contingent of Republican-controlled states to invalidate all of ACA, which is being defended by a coalition of 20 states and the District of Columbia. The Supreme Court is scheduled to hear oral arguments on November 10, 2020. Many legal scholars consider the Fifth Circuit’s ruling shocking and overly broad and believe that judicial invalidation of ACA in its entirety, when Congress only repealed the tax on the individual mandate, violates the doctrine of severability. For now, ACA remains the law of the land, and employers should continue with compliance efforts.
  • Comply with Large Employer Shared Responsibility Rules or Face Penalties:
    • Enforcement and No Statute of Limitations: The IRS continues to enforce large employer shared responsibility penalties under Code Section 4980H by issuing Letters 226J (and other notices) to potentially non-compliant employers. Penalty enforcement began in the fall of 2017 and shows no sign of slowing or ending. In fact, a recent IRS Memorandum takes the position that no statute of limitations applies with respect to failures to comply with the large employer shared responsibility rules. In support of this position, the IRS asserts that because no return is filed containing the information necessary to calculate any applicable penalty, the statute of limitations does not begin to run. Penalties for 2017 through 2021 are noted in the chart below.
    • Large Employer Shared Responsibility Payments: Large employers can be subject to penalties if any full-time employee receives a premium tax credit and either (a) the employer fails to offer minimum essential coverage (“MEC”) to 95% of its full-time employees (and their dependents) or (b) the coverage is either not affordable or does not provide minimum value. Missing the 95% test even slightly (e.g., coming in at 94%) will require the employer to pay a penalty for each full-time employee (minus the first 30 full-time employees). The rules are explained in more detail in our Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers. Below are important penalties, percentages, and premiums under Code Section 4980H, as adjusted year-over-year:
--> Scroll to see full table data
Code Section 4980H Adjusted Penalties, Affordability Percentages, and Federal Poverty Level (“FPL”) Allowable Premium
2017
2018
2019
2020
2021
Code Section 4980H(a) $2,000 penalty for failing 95% offer of coverage test
$2,260 annual or $188.33 monthly
$2,320 annual or $193.33 monthly
$2,500 annual or $208.33 monthly
$2,570 annual or $214.16 monthly
$2,700 annual or $225 monthly
Code Section 4980H(b) $3,000 penalty for coverage failing to be minimum value and affordable
$3,390 annual or $282.50 monthly
$3,480 annual or $290 monthly
$3,750 annual or $312.50 monthly
$3,860 annual or $321.66 monthly
$4,060 annual or $338.34 monthly
Code Section 4980H percentage for W-2, rate of pay, and FPL affordability safe harbors
9.69%
9.56%
9.86%
9.78%
9.83%
FPL compensation amount posted in January for 48 Contiguous United States (FPLs are higher for Alaska and Hawaii)
$12,060
$12,140
$12,490
$12,760
To be announced in January 2021
FPL monthly allowable premium for calendar year plans (using FPL for 48 contiguous United States)
$11,880 x 9.69%/12 =$95.93 or $12,060 x 9.69%/12 =$97.38
$12,060 x 9.56%/12 =$96.07 or $12,140 x 9.56%/12 =$96.71
$12,140 x 9.86%/12 = $99.75 or $12,490 x 9.86%/12 = $102.62
$12,490 x 9.78%/12 = $101.79 or $12,760 x 9.78%/12 = $103.99
$12,760 x 9.83%/12 = $104.52 or $_____ x 9.83%/12 = $______*
--> Scroll to see full table data
* This amount cannot be calculated until January 2021.
  • Consider Amendments to Align Plan with Code Section 4980H Full-Time Employee Determinations: Some employers are making eligibility determinations under their health plans align with full-time employee status under Code Section 4980H. Employers who want to do so may need to amend their health plans to reflect these complicated eligibility rules. Employers may also need to consider how to administer COBRA if they are using the look-back measurement method to determine full-time status under Code Section 4980H.
  • Complete Code Sections 6055 and 6056 Reporting:
    • All Employers with Self-Insured Health Plans are Required to Report MEC: Code Section 6055 requires all entities providing MEC to submit information concerning each covered individual for the calendar year to the IRS and to certain covered individuals. MEC is broadly defined to include any group health plan or group health insurance that is not an excepted benefit (such as a stand-alone dental or vision plan). Reporting is again required in early 2021 for coverage offered in 2020. The deadlines for this reporting are set out below. Unlike Code Section 6056 (discussed below), all employers sponsoring self-insured health plans are required to report on all covered employees, regardless of the size of the employer or the status of the covered employee (e.g., part-time). Employers sponsoring insured health plans are not required to comply because the insurance company is required to complete the reporting. However, such employers may need to collect employee information and provide it to the insurer so that the insurer can meet its Code Section 6055 obligations. Generally, entities reporting under Code Section 6055 are required to use Form 1094-B (the IRS transmittal form) and Form 1095-B (individual statements). Large employers that sponsor self-insured health plans may use combined reporting to comply with both Code Section 6055 and Section 6056 by completing a Form 1095-C (as described in the next paragraph) for each individual, and can disregard Forms 1094-B and 1095-B.
    • Large Employers are Required to Report on Health Coverage Offered to Full-Time Employees: Code Section 6056 requires applicable large employers to report to the IRS information regarding health coverage offered to full-time employees for each calendar year. Reporting is again required in early 2021 for coverage offered in calendar year 2020. The deadlines for this reporting are set out below. Additionally, applicable large employers are required to provide individual statements to each full-time employee regarding the type of coverage that was offered to that employee during 2020. All applicable large employers are required to comply, regardless of whether the employer sponsors a self-insured or fully insured health plan, or if the employer does not offer health coverage to its employees. Employers are required to use Form 1094-C (the IRS transmittal form) and Forms 1095-C (the individual statements) to complete this reporting. Note that the Draft Form 1095-C has been revised to reflect reporting of individual coverage heath reimbursement arrangements. The Draft Form 1094-C has not been substantively revised.
    • Reporting Deadlines: While the IRS has provided an extended deadline for certain information reporting under Code Sections 6055 and 6056 in prior years, as of the date of this Employee Benefits Update, no such extensions have been announced for reporting offers of coverage for 2020. Prior year extensions usually have been announced at year-end. An extension may yet be published for the 2020 calendar year. Absent an extension, the following deadlines apply:
Code Section 6055: Health Coverage Reporting
Form
Filing Deadline
Form 1095-B (to employees)
January 31, 2021
Form 1094-B (to IRS)
February 28, 2021 (paper filing) March 31, 2021 (electronic filing)

Code Section 6056: Employer-Provided Health Insurance Offer and Coverage Reporting
Form
Filing Deadline
Form 1095-C (to employees)
January 31, 2021
Form 1094-C (to IRS)
February 28, 2021 (paper filing) March 31, 2021 (electronic filing)
  • Penalty Assessments for Coverage Failures: As indicated above, the IRS continues to enforce the large employer shared responsibility penalties under Code Sections 4980H(a) and 4980H(b). To that end, the IRS has been issuing Letters 226J to certain applicable large employers who failed to offer compliant health care coverage under Code Section 4980H. Employers that receive a Letter 226J are required to respond or request an extension within 30 days. If an employer does not respond within the 30-day period (plus any extension), the IRS will assess the penalty indicated in the Letter 226J and will issue a notice and demand for payment.
  • Penalty Assessments for Late or Incorrect Filings: In addition to penalty assessments for coverage failures under Code Sections 4980H(a) and 4980H(b), as described above, the IRS has begun assessing penalties against applicable large employers that failed to file, or filed incomplete or inaccurate information returns. These penalties can be significant. The IRS assesses late filing penalties on a graduated basis based on the length of time that has elapsed from the filing deadline. Penalties range from $50 per form for returns filed within 30 days of the filing deadline to $270 per form for returns filed after August 1 of the applicable year. These penalties substantially increase if the failure is the result of intentional disregard. Note that the IRS may offer penalty relief on a showing of good faith and reasonable cause.
  • Record Retention: The IRS has not provided specific guidance about records that should be kept to demonstrate compliance with the requirements of Code Section 4980H and its related reporting requirements. Nevertheless, employers should give careful consideration to all potential records they might need to defend against penalty assessments. In particular, employers should consider retaining vendor communications regarding qualifying offers of coverage, confirmation of enrollment information, employee waivers, Forms 1094-C and 1095-C, and other related documents for the 2015 calendar year to the present. For more information about record retention in this context, see our SW Benefits Blog of April 25, 2019, “IRS Letters 226J: Having the Right Section 4980H Records Can Be Worth a Small Fortune.”
  • Review Plan Eligibility Provisions in Light of California Assembly Bill 5 (“AB 5”): As reported in our Legal Alert of September 30, 2019, “A New Law Passed Raising the Standard for Classifying Workers as Independent Contractors in California,” in 2019, AB 5 set forth a new test for determining whether workers are employees or independent contractors for purposes of the California Labor and Unemployment Insurance Codes. Employers with operations in California are tasked with ensuring they properly classify workers in light of AB 5. As a reminder, most health and welfare plans are governed by ERISA and the Code, both of which have their own tests for determining whether workers are employees. As employers examine their workforce under AB 5, they also should consider whether any reclassified workers are employees for purposes of ERISA and the Code. Employers should then review the eligibility provisions of their employee benefit plans to ensure that plan coverage is consistent with the employer’s intent. Employers should also keep an eye on developing case law regarding AB 5, as various lawsuits have been filed to challenge the new law. On January 16, 2020, the U.S. District Court for the Southern District of California granted a preliminary injunction blocking AB 5 from being applied to motor carriers operating in California in California Trucking Association v. Becerra. Still, California is actively enforcing AB 5 against other employers, even going so far as to file a lawsuit against Uber and Lyft regarding the misclassification of their drivers.
  • Follow State Individual Mandate Laws and Associated Reporting: Despite the repeal of the individual mandate under ACA, some states have, or are considering, their own statewide individual mandate. A Kaiser survey provides that six states have enacted individual mandate requirements including: California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont. Accordingly, employers, particularly those with operations in these states, may want to track developments in this area so they can be prepared to comply with any state obligations. Some states require reporting regarding their individual mandates which also warrants monitoring for compliance.
  • Consider Providing Free Preventive Care for Chronic Conditions: As reported in our August 8, 2019 SW Benefits Blog, “Preventive Care Can Now Be Covered for Specified Chronic Conditions Before HDHP Deductible,” in July 2019 the IRS released Notice 2019-45 that allows health plans to provide free preventive care before a deductible is met for certain chronic conditions, such as asthma, diabetes, and heart disease, without jeopardizing a plan’s status as an HDHP. The Notice is effective July 17, 2019. Before IRS Notice 2019-45 was released, an HDHP could not provide free preventive care for certain chronic conditions before the deductible was met because prior IRS guidance made clear that preventive care generally does not include any service or benefit intended to treat an existing illness or injury. Now, in addition to items that are preventive care under prior guidance, the medical services and drugs for certain chronic conditions are deemed to be preventive care for someone with that chronic condition. The Appendix to the Notice contains an exhaustive list of the medical services and drugs that are deemed to be preventive care for the treatment of the specified chronic conditions. Health plans must be careful that they do not provide free preventive care for chronic conditions beyond what is listed in the Appendix. Doing so could cause a health plan to not be an HDHP, rendering all participants, not just those who receive free preventive care for chronic conditions, ineligible to make or receive “HSA” contributions. Employers that want to take advantage of these new rules may need to coordinate with third party administrators (“TPA”), adopt plan amendments, and prepare employee communications explaining the new rules. Some TPAs were unable to implement these new rules in 2019 or early 2020, but may be able to do so now or in 2021. Employers should consider contacting their insurers and TPAs to see when, or if, they are able to implement these rules.
  • Consider Whether to Count Drug Discounts Toward Maximum Out-of-Pocket Limits (“MOOP”): The Department of Health and Human Services (“HHS”) indicated in its Notice of Benefit and Payment Parameters (“NBPP”) for 2020 Rules that for plan years beginning on or after January 1, 2020, if a health plan covers a medically appropriate and available generic equivalent, the health plan can exclude the value of the drug manufacturers’ coupons from a participant’s MOOP. This implied that if a health plan does not cover a medically appropriate generic equivalent, or such generic equivalent is not available, the health plan must count coupons toward MOOP. Since then, HHS, DOL and Treasury (collectively the “Departments”) have retracted and clarified their position. First, the Departments acknowledged in an FAQ that counting coupons toward MOOP contradicts IRS Notice 2004-50, Q&A 9 and decided not to require group health plans to count coupons against deductibles or MOOP until future guidance is issued. Q&A 9 requires an HDHP to disregard drug discounts and other manufacturers’ and providers’ discounts in determining if the minimum deductible for an HDHP has been satisfied and only allows amounts actually paid by the individual to count against the deductible. Second, in its May 2020 NBPP for 2021 Rules, HHS solidified its position and revised HHS Regulation Section 156.130(h) to state that, to the extent consistent with applicable state law, amounts paid toward reducing the cost sharing incurred by an enrollee using any form of direct support offered by drug manufacturers for specific prescription drugs may be, but are not required to be, counted toward the annual limitation on cost sharing.
  • Self-Funded Plans: Sponsors of self-funded plans may decide the safer approach is to not count drug discounts or coupons towards deductibles or MOOP. This way they do not risk disqualifying their HDHPs or rendering their HDHP participants HSA-ineligible.
    • Insured Plans: Sponsors of insured plans may also decide the safer approach is to not count drug discounts or coupons toward deductibles or MOOP. However, in some states, sponsors may be restricted by state insurance laws. For example, Arizona has its own rules regarding when drug discounts and coupons count towards MOOP, deductibles, copayments, coinsurance, or other applicable cost sharing requirements. Employers who offer insured health plans in those states need to consider whether these state laws mean their health plans cannot operate as HDHPs, which would also make participants HSA-ineligible.
    • For more information regarding this issue, please see our October 10, 2019 SW Benefits Blog, “Must Drug Manufacturer Coupons Count Toward Annual Maximum Out-Of-Pocket Limits? Stay Tuned …”
  • Consider Duty to Monitor TPAs for Cross Plan Offsetting Practices: “Cross plan offsetting” occurs when a TPA mistakenly overpays an out-of-network provider under one plan, and then to recover such amounts, underpays that same provider under another plan. In Peterson v. UnitedHealth Group, Inc., the Eighth Circuit ruled that it was not reasonable to rely on generic grants of administrative authority to interpret a plan as authorizing cross-plan offsetting. While the Court did not expressly permit or prohibit cross-plan offsetting, it noted that the practice “is in some tension with ERISA” and “is questionable at the very least.” Meanwhile, the DOL clearly opposes cross-plan offsetting and has taken the position in an amicus brief that it violates ERISA Sections 404 (duty of loyalty) and 406 (prohibited transactions). On July 14, 2020, a class action lawsuit, Scott, et. al. v. UnitedHealth Group, Inc., et. al., was filed in the U.S. District Court for the District of Minnesota. The class alleges that UnitedHealth Group, Inc. and its wholly-owned subsidiaries violated their fiduciary duties through their cross-plan offsetting practices. Although the courts have yet to rule on whether cross-plan offsetting violates ERISA, plan sponsors may want to consider whether their TPAs engage in this practice and if so, further evaluate the risk and update their plan language to allow the practice if necessary.
  • Monitor Federal Legislation Regarding Surprise Billing: The term “surprise billing” refers to the high, unexpected bills that occur when an insured individual unintentionally receives care from an out-of-network provider. This occurs most often when an individual receives planned services from an in-network provider, but an out-of-network provider is brought in for ancillary services (e.g., an anesthesiologist or radiologist). Employers often wrestle with how to handle surprise bills, including whether they should intervene and if so, what they are legally permitted to do. Although there currently is no good answer, Congress has been working on a bipartisan solution. For patients, the proposals indicate they would pay providers an amount based on their in-network cost-sharing requirements and providers would be prohibited from balance-billing the remainder. For insurance companies/self-funded plans, the proposals indicate that the health plan would pay providers an amount based on a market-based benchmark or arbitration (or some combination thereof) or voluntary negotiations and mediation. The Trump Administration is also committed to protecting patients from surprise billing as demonstrated by its May 9, 2019 Fact Sheet and the President’s June 24, 2019 Executive Order, which, in relevant part, required HHS to submit a report to the President on surprise billing. On July 29, 2020, HHS released its HHS Secretary’s Report on: Addressing Surprise Medical Billing which outlines critical steps, including Congressional action, to implement the Administration’s principles on surprise billing.
  • Two New HRA Options for 2020: Effective January 1, 2020, there were two new HRAs that both small and large employers could offer to employees for the first time – Individual Coverage HRAs (“ICHRAs”) and Excepted Benefit HRAs (“EBHRAs”). An overview of these two new HRAs is provided in our September 5, 2019 SW Benefits Update, “Zombie Benefits Part II: Health Reimbursement Arrangements (“HRAs”) Are Back From the Dead.” The final regulations are long, incredibly complex and, in some cases, require advance notice to employees. Employers wanting to offer one of these new HRAs need to prepare plan documents and summaries, and timely distribute applicable notices. The Departments have issued a News Release, FAQs, a Model ICHRA Notice, and two Model ICHRA Attestations (for annual and ongoing substantiation). The FAQs provide a helpful overview of the new HRA requirements. Additional details can be found in the final regulations. For an update on recent COVID-19 pandemic guidance affecting ICHRAs, see our July 28, 2020 SW Benefits Update, “Free COVID-19 Testing Extended for Another 90 Days.”
  • On September 30, 2019, the IRS issued proposed regulations to clarify how the employer shared responsibility requirements under Code Section 4980H and the nondiscrimination requirements under Code Section 105(h) apply to ICHRAs. Final regulations have not been issued, likely due to delay caused by the COVID-19 pandemic, but employers generally may rely on the proposed regulations for ICHRA plan years beginning before the date that is six months following publication of final regulations.
    The Trump Administration has advocated for broader employer adoption of ICHRAs and EBHRAs. However, employers might consider delaying ICHRA or EBHRA adoption until after the upcoming elections. A change in Administrations, or in the make-up of Congress, could cause a return to Obama-era rules under which using HRAs to buy individual policies was disfavored.
  • Association Health Plans (“AHPs”): As explained in our SW Benefits Blog of June 29, 2018, “Association Health Plans – A New Frontier?” the DOL published a final AHP rule on June 21, 2018 that allows unrelated employers to participate in a single employer group health plan. On March 28, 2019, the U.S. District Court for the District of Columbia struck down key provisions of the final rule in New York v. United States Department of Labor for being an “end-run around” ACA and for doing “violence” to ERISA. The DOL filed a notice of appeal on April 26, 2019 and the appeal is now before the D.C. Circuit, which held oral arguments on November 14, 2019. After the March 28 ruling, the DOL issued additional guidance addressing the status of AHPs, including an official statement and two Q&As (Part 1 and Part 2). Under the guidance, the DOL will not pursue enforcement actions against AHPs formed prior to the March 28 ruling in good faith reliance on the final rule’s validity (subject to certain conditions). Such plans can continue to provide benefits to members who enrolled in good-faith reliance on the final rule through the remainder of the applicable plan year or contract term. However, new AHPs cannot be formed during the interim period and AHPs formed prior to the March 28 ruling in good faith reliance on the final rule’s validity cannot market to, or sign up, new employer members.
  • Consider Impact of Nondiscrimination Rules: Employers may want to consider the impact of the following nondiscrimination rules in the context of providing health and welfare benefits:
    • Title VII of the Civil Rights Act of 1964: Title VII prohibits employers from discriminating against employees with respect to compensation, terms, conditions, or privileges of employment because of such individual’s race, color, religion, sex or national origin. The Equal Employment Opportunity Commission (the “EEOC”) has ruled that discrimination based on sexual orientation is a form of sex discrimination prohibited under Title VII. This position was reinforced in the landmark Supreme Court decision, Bostock v. Clayton County Georgia, as we described in our June 19, 2020 SW Benefits Update, “Supreme Court Holds Employers Cannot Discriminate Against LGBTQ Employees: Are Your Employee Benefit Plans Up to Snuff?” In Bostock, the Supreme Court held that the term “sex” under Title VII includes sexual orientation and gender identity, finding that “[a]n employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex. Sex plays a necessary and undisguisable role in the decision, exactly what Title VII forbids.” Although Bostock specifically addressed the hiring and firing of LGBTQ employees, the ruling has wide-ranging employee benefit implications. Accordingly, employers should consider assessing whether their employee benefit plans discriminate against their LGBTQ employees. This could happen, for example, when a health and welfare plan: (1) provides coverage to opposite-sex spouses, but not same-sex spouses, or vice versa; (2) provides coverage to same-sex domestic partners, but not opposite-sex domestic partners, or vice versa; (3) denies coverage to transgender employees; (4) charges transgender employees a higher premium for coverage; (5) does not provide medically necessary mental health benefits, hormone therapy, and some level of gender-affirmation surgical benefits for transgender employees; (6) limits sex-specific care based on an individual’s sex assigned at birth, gender identity, or recorded gender; (7) does not cover family planning benefits for LGBTQ employees if family planning benefits are covered for opposite-sex couples; and (8) does not provide disability benefits due to gender dysphoria or gender-affirmation surgeries.
    • Section 1557 of ACA: Obama-era final regulations implementing Section 1557 of ACA prohibited individuals from being excluded from participation, denied benefits or subjected to discrimination under any health program or activity that receives federal financial assistance from HHS on the basis of race, color, national origin, sex, age, or disability. In part, the final rule focused on the provision of health services to transgender participants and prohibited the blanket exclusion of services designed to treat gender dysphoria and to assist in gender transition. Since taking effect in 2016, the Obama-era regulations faced sustained legal challenges. Ultimately, on June 19, 2020 (just three days before the Supreme Court’s Bostock ruling), HHS released new final regulations, which repeal the rules under Section 1557 covering nondiscrimination based on sexual orientation and gender identity in health services. Essentially, the new final regulations permit the categorical refusal of health coverage to transgender participants and the denial of treatment inconsistent with self-selected gender identity. That these final rules appear to be inconsistent with the Supreme Court’s interpretation of “sex” in the Bostock case resulted in a federal court enjoining the final rules pending resolution of a lawsuit challenging the same. More information about the Section 1557 final regulations can be found in our June 19, 2020 SW Benefits Update, “Supreme Court Holds Employers Cannot Discriminate Against LGBTQ Employees: Are Your Employee Benefit Plans Up to Snuff?”
    • Federal Contractors: Final regulations issued by the Office of Federal Contract Compliance Programs, on June 15, 2016, extended nondiscrimination principles similar to those embodied in Obama-era Section 1557 to employers holding federal contracts valued in excess of $10,000 in any 12-month period. These rules prohibited the categorical exclusion of health care coverage related to gender dysphoria or gender transition and became effective August 15, 2016. By notice of proposed rulemaking dated December 30, 2019, the DOL indicated that it would limit the application of the transgender nondiscrimination rules in favor of religious and other considerations.
    • Other Nondiscrimination Considerations: In addition to the nondiscrimination rules described above, employers may want to be mindful of other non-legal considerations. In particular, the Human Rights Campaign Corporate Equality Index, a national benchmarking tool on employer policies affecting LGBTQ employees, considers whether an employer excludes transgender benefits from its benefit plans. The Human Rights Campaign has indicated that for a business to achieve a perfect score on the Corporate Equality Index, an employer must remove transgender exclusions from its benefit plans.
  • Identify and Correct COBRA Notice Failures: If applicable, COBRA requires employers to distribute general and election notices. Employers that fail to timely comply with these notice rules are subject to an excise tax of $100 per day per affected individual (or $200 per day per family). In general, this failure and the related penalty must be self-reported to the IRS on the Form 8928. An employer may avoid the excise tax penalty and the related filing requirement if the failure was due to reasonable cause (and not willful neglect) and the failure is corrected within 30 days of the date that it was discovered or should have been discovered using reasonable diligence. Employers should consider regularly confirming they are complying with both COBRA notice requirements and, if necessary, correct failures immediately upon discovery.
    • Updated Model Notices: On May 1, 2020, the DOL updated its model general notice and model election notice available here. The updates are designed to ensure beneficiaries understand how COBRA interacts with Medicare. The DOL issued accompanying FAQs About COBRA Model Notices, which further explain the interactions between COBRA and Medicare, noting which coverage pays first when an individual is enrolled in both. Although the DOL has not provided a specific deadline, plan sponsors may want to consider updating their COBRA notices as soon as possible to add the new model language.
    • Increase in COBRA Litigation: COBRA litigation involving allegedly deficient COBRA election notices is on the rise. In addition to updating the general notice and election notice to be consistent with new DOL model notices, employers may also want to confirm that all COBRA notices comply with applicable laws, rules, and guidance; all COBRA notices are timely distributed; COBRA provisions in plan documents and summary plan descriptions (“SPDs”) are up-to-date and accurate; and third party agreements with COBRA administrators have sufficient language to protect the employer and plan administrator.
  • Be Proactive with HIPAA Compliance: Currently most of HHS’s HIPAA and COVID-19 guidance is directed at health care providers, rather than health plans. However, because COVID-19 has accelerated the transition to both remote health care and remote work, employers would be wise to focus on their compliance efforts, and may want to consider the following:
    • Perform Risk Analysis and Risk Management: If an employer’s workforce has suddenly transitioned to be largely remote, including those workforce members who have access to PHI, it likely has new risks and vulnerabilities to consider. The Security Rule requires covered entities to perform a risk analysis as part of their security management processes. Risk analysis is an ongoing process and includes, but is not limited to: (1) evaluating the likelihood and impact of potential risks to e-PHI; (2) implementing appropriate security measures to address the risks identified in the risk analysis; (3) documenting the chosen security measures and, where required, the rationale for adopting those measures; and (4) maintaining continuous, reasonable, and appropriate security protection.
    • Update HIPAA Policies and Procedures and Training: After performing a risk analysis, employers may want to consider reviewing and, if necessary, updating their HIPAA privacy and security policies and procedures and training materials to address their new work-from-home environment and any other vulnerabilities discovered during the risk analysis. If an employer has been delayed in performing an updated risk analysis, it may consider reminding workforce members that their responsibilities under HIPAA continue to apply and taking steps to ensure that workforce members comply with the employer’s existing HIPAA policies and procedures (e.g., through monitoring and training exercises).
    • Monitor HHS Guidance: While employers continue their ongoing HIPAA compliance efforts, they may also want to watch out for new or updated HIPAA guidance. HHS’s regulatory agenda indicates that there are a couple of rules in the proposed rule stage and HHS has been steadily issuing COVID-19 subregulatory guidance available here.
  • Review Wellness Programs: Depending on the particular benefits a wellness program offers, a wellness program may be subject to a unique combination of requirements under statutes such as ERISA, the Code, HIPAA, ADA, GINA, and COBRA, to name a few. This leaves substantial compliance risk when trying to design wellness programs. Minor changes can have a major impact. Periodically reviewing wellness offerings may help avoid costly mistakes. For more information please see our September 20, 2018 SW Benefits Blog, “New Plan Year, New Wellness Program – Some Things to Keep in Mind.”
    • Consider Waiving a Standard for Obtaining a Reward: In FAQs Part 43, the Departments clarified that a plan is permitted to waive a standard (including a reasonable alternative standard) for obtaining a reward under a health-contingent wellness program as a result of the COVID-19 pandemic as long as the waiver is offered to all similarly situated individuals. Employers that offer health-contingent wellness programs may want to consider offering this relief if, for example, wellness program standards such as an on-site biometric screening or health risk assessment are impracticable due to COVID-19 contagion issues.
    • Monitor EEOC Guidance and Consider Incentive Limits: In the August 22, 2017, AARP v. EEOC decision, the U.S. District Court for the District of Columbia ordered the EEOC to review the ADA and GINA final rules and to consider whether the 30% incentive/penalty renders participation in a wellness program “involuntary” and thereby violates the statutes. On December 20, 2017, the Court ordered that such incentive/penalty provision be vacated effective January 1, 2019. One year later, the EEOC issued final rules, formally removing the 30% incentive provisions from its regulations effective January 1, 2019. On June 11, 2020, the EEOC held a remote meeting and voted to advance a new notice of proposed rulemaking that would address what level of incentives employers may lawfully offer to encourage employee participation in wellness programs that require disclosure of medical information, without violating the ADA. The EEOC’s press release indicates that the notice of proposed rulemaking proposes that for most wellness programs employers may offer no more than a de minimis incentive to encourage participation, and must meet other requirements, to comply with the ADA. However, certain wellness programs will be permitted to offer the maximum allowed incentive under the 2013 HIPAA regulations. It will likely be months before the EEOC issues its final wellness program rules. For more information please see our May 17, 2018 SW Benefits Blog, “Wellness Rules Under the ADA – Will There Ever Be Certainty?”
    • Include ADA Notice with Open Enrollment Wellness Program Communications: Although the Court vacated the ADA’s 30% incentive provision, the other provisions under the ADA wellness rules, such as the ADA Notice requirement, remain in effect. In 2016, the EEOC published a Sample Notice for Employer-Sponsored Wellness Programs to assist employers in complying with the requirements of the ADA final rule. Employers who offer wellness programs subject to the ADA are required to send a tailored notice to all employees eligible to participate in an employer’s wellness program. The EEOC requires that employees receive a notice before submitting certain health information so that employees can decide whether they would like to participate in the program. The notice can be provided in any format that will be effective in reaching employees, including email or hard copy.
  • Consider Proper Treatment of Genetic Testing Services: The IRS recently issued a private letter ruling indicating that certain genetic testing services will qualify as medical care under Code Section 213(d) and the taxpayer at issue could use his Health FSA to purchase such services. Importantly, the IRS required the taxpayer to allocate which items are medical care (i.e., genotyping) and which items are not medical care (i.e., ancestry services). Although the ruling is not binding precedent, and only the taxpayer at issue may rely on it, it offers employers some insight into the IRS’s position on genetic testing services.
  • Comply with Mental Health Parity Requirements: In general, the mental health parity rules require group health plans to ensure that financial requirements (e.g., co-pays, deductibles, and coinsurance) and quantitative and non-quantitative treatment limitations (e.g., visit limits, days of coverage maximums, and medical necessity standards) applicable to mental health or substance use disorder benefits are no more restrictive than the predominant requirements or limitations applied to substantially all medical/surgical benefits. The parity rules concerning financial requirements and treatment limitations were created by the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”), which supplemented the Mental Health Parity Act of 1996. In November 2013, final regulations were issued implementing the provisions of MHPAEA. The final MHPAEA regulations apply to group health plans for plan years beginning on or after July 1, 2014. Employers sponsoring plans were required to comply with these parity requirements in 2015. Employers who have not done so yet may want to consider reviewing their plans and consulting with their insurers and TPAs to ensure that they are complying with these rules.
    • Note however, FAQs Part 43 provide limited enforcement relief under the MHPAEA by allowing plans to disregard free COVID-19 diagnostic testing and other services required to be covered under FFCRA Section 6001 for purposes of determining whether a financial requirement or quantitative treatment limitation (1) applies to “substantially all” medical/surgical benefits in a classification, or (2) is more restrictive than the “predominant” level applicable to medical/surgical benefits. Importantly, the relief in FAQS Part 43 does not extend to free, or reduced cost, COVID-19 treatment. For information regarding the items and services required to be covered under FFCRA, see the above paragraph “Consider Health and Welfare COVID-19 Issues.”
    • Telemedicine: As explained in the paragraphs “Consider Health and Welfare COVID-19 Issues” and “Consider Proper Treatment of Telemedicine Benefits,” telemedicine has played an important role in the COVID-19 pandemic. Employers that offer telemedicine benefits should ensure that they continue to design their telemedicine benefits to comply with mental health parity requirements. Unlike COVID-19 diagnostic testing and services, there is no enforcement relief for telemedicine.
    • Enforcement: Agency enforcement is ongoing. In early 2020, the DOL issued a Fact Sheet and Compendium that summarize its mental health parity enforcement data and enforcement strategy for 2019.
  • Consider Offering Alternatives to Opioids and Access to Addiction Support Services: As can be seen on the White House website, the Trump Administration has prioritized the fight against opioid drug addiction. Accordingly, employers may wish to evaluate benefits they might offer under their group health plans. Multi-disciplinary alternatives to opioids include, for example, physical therapy, acupuncture, and lifestyle counseling. However, employers that are considering covering medical marijuana and cannabis products should proceed with caution because there is considerable risk, including the taxation of such products, and, in the worst case scenario, the disqualification of the plan upon IRS audit. Employers may also wish to evaluate whether their group health plans impose any treatment limitations (e.g., a fail-first requirement) or exclusions (e.g., excluding methadone for opioid addiction) and, if so, whether they comply with federal mental health parity rules.
  • Continue Complying with ACA Changes: Employers may want to consider ACA compliance issues. See our updated checklist that provides a more detailed summary of the principal requirements under ACA. The purpose of that checklist is to provide a summary of the principal requirements under ACA that apply to employer-sponsored group health plans. ACA and its related guidance go into much more detail and should always be consulted when considering its application to any particular plan.
  • If a Group Health Plan is a Grandfathered Plan, Review Grandfathered Status: Group health plans that were in existence on or before March 23, 2010, and that have not undergone significant changes since then (“grandfathered plans”), have to comply with some, but not all, of the requirements under ACA. Employers that have made any changes to their health plans or added a wellness component in 2020, or in connection with open enrollment for an upcoming plan year, may want to consider whether those changes cause the plan to lose grandfathered plan status. A plan that loses grandfathered status is required to comply with additional requirements that apply to non-grandfathered plans as of the date on which it loses grandfathered plan status. Very few plans still have grandfathered plan status. Those that do are required to make sure that they comply with the grandfathered plan notice requirements.
    • COVID-19 Relief: In FAQs Part 43, the Departments clarified that if a grandfathered plan reduces or eliminates cost-sharing requirements for the diagnosis and treatment of COVID-19, or for telehealth and other remote care services, during the public health or national emergency period related to COVID-19, the plan will not lose its grandfathered status solely because it later reverses these changes upon the expiration of the COVID-19 emergency period.
    • Proposed Regulations: Employers may also want to look out for updated guidance (currently in proposed form and available here) that is intended to make the grandfathered plan rules more flexible. If finalized, the regulations would: (1) allow HDHPs to make certain changes to their fixed-amount cost-sharing requirements without losing grandfathered status; and (2) revise the definition of “maximum percentage increase” to provide an alternative method of determining that amount based on the premium adjustment percentage.
  • Cover Preventive Services without Cost Sharing in Non-Grandfathered Health Plans: Non-grandfathered group health plans were first required to provide coverage for preventive services without cost sharing for plan years beginning on or after September 23, 2010. Non-grandfathered group health plans were required to cover additional women’s preventive services without cost sharing for plan years beginning on or after August 1, 2012 (i.e., January 1, 2013, for calendar year plans). Plan sponsors and insurers that are subject to the preventive services mandate may want to consider periodically reviewing and updating their plans to ensure that they are covering all the preventive services described in the recommendations and guidelines, which change from year-to-year. Information about the recommendations and guidelines is available here, which is updated periodically. As reported in our June 21, 2017 SW Benefits Blog, “Why Isn’t My ‘Free’ Preventive Health Care Free?,” it appears that many providers incorrectly code preventive care services, so the entire procedure is not free as it should be. Employers should consult with their insurers and TPAs to make sure that their employees are receiving the free preventive care to which they are entitled. If an employee’s “free” preventive care ends up not being free, the employee may be less likely to use free preventive care benefits in the future.
  • Consider Contraceptive Coverage Changes: On November 7, 2018, the Departments released final regulations, effective January 1, 2019, that generally adopted the interim final regulations regarding religious and moral objections to ACA’s free contraceptive coverage mandate:
  • On July 12, 2019, in Pennsylvania v. President United States, the Third Circuit upheld the ruling by the U.S. District Court for the Eastern District of Pennsylvania that issued a preliminary nationwide injunction blocking enforcement of these rules on the grounds that they likely violated the Administrative Procedures Act, and neither ACA nor the Religious Freedom Restoration Act authorized or required the final rules. However, on July 8, 2020, in Little Sisters of the Poor v. Pennsylvania, the Supreme Court upheld the rules and reversed and remanded the Third Circuit ruling with instructions to dissolve the injunction.
    Due to the recent Supreme Court case, more employers may make changes to their contraceptive care coverage based on the above rules. Employers that are considering changes may be served well by continuing to monitor developments in the law and being aware that other laws, such as Title VII (including the Supreme Court’s recent decision in Bostock as discussed in the above paragraph on Title VII of the Civil Rights Act of 1964) and state insurance laws, also may have an effect on what changes can be made to contraceptive coverage.
    • Religious Exemption: The first rule provides a religious exemption for organizations that object to offering coverage for contraceptive services with respect to a group health plan established or maintained by the objecting organization. Objecting organizations are defined broadly to include churches, nonprofit organizations, for-profit entities, institutions of higher education, and any other non-governmental employers. Objecting organizations are not required to provide coverage of some or all contraceptive services if the objection is based on sincerely held religious beliefs.
    • Moral Exemption: The second rule provides a moral exemption for organizations that object to offering contraceptive care coverage based on moral conviction rather than a specific religious belief. This exemption is narrower in scope and applies to non-profit organizations, closely held for-profit entities, and institutions of higher education.
  • Health Care Exchange Changes: Employers may determine that Health Care Exchanges benefit their employees and former employees. For example, coverage under a Health Care Exchange may sometimes be cheaper than COBRA coverage under the employer’s group health plan. Employers who wish to communicate to employees about Health Care Exchanges may want to consider the following:
    • Open Enrollment Period for 2021: The open enrollment period for 2021 will run from November 1 to December 15, 2020. Coverage sold during the open enrollment period takes effect January 1, 2021.
    • Special Enrollment Periods: In order to sign up for Health Care Exchange coverage outside of the annual open enrollment period, individuals are required to experience a “qualifying event,” and sign up for coverage within 60 days. However, because FEMA declared COVID-19 a national emergency, individuals who qualified for a special enrollment period but missed the deadline because they were impacted by COVID-19 may be eligible for another special enrollment period. More information about such relief is available here. Employers may be required to provide proof of qualifying events to employees, such as termination of employment, so employees can enroll in Health Care Exchange coverage.
    • Model Health Care Exchange Notices: ACA amended the Fair Labor Standards Act to require that employers provide employees with written notice about the existence of the Health Care Exchanges and other relevant information. The DOL has provided two model notices to help employers comply with this requirement, one for employers that offer health plan coverage to their employees and another for employers that do not. More information about the Health Care Exchange notice requirement, and links to the model notices, can be found on the DOL website here.
  • PCORI Fees: The Further Consolidated Appropriations Act, 2020 reinstated PCORI fees for an additional ten years. As a result, health insurance issuers and sponsors of self-insured health plans are required to report and pay PCORI fees for plan and policy years ending before October 1, 2029 on the Form 720 by the July 31 following the last day of the plan year. The PCORI fee for a plan or policy year is equal to the average number of lives covered under the plan or policy, multiplied by an applicable dollar amount for the year. The applicable dollar amount for plan years that end on or after October 1, 2019 and before October 1, 2020 is $2.54. For more information regarding this issue, please see our January 22, 2020 SW Benefits Blog, “Congress Giveth and They Taketh Away – Recent Health Plan Changes.”
  • Review Whether Plan Documents and SPDs Grant Discretionary Authority to Plan Decisionmakers and Their Delegates: Preparing for an upcoming plan year is a good time for employers to review their health and welfare plan documents and SPDs to confirm that the plan’s language expressly and unambiguously grants its decisionmakers and their delegates discretionary authority. The purpose of including this language is to increase the likelihood a court will apply a more favorable abuse of discretion standard of review in litigation. Although the level of formality may vary by court, generally a court may require a de novo standard of review if the plan document at issue does not grant discretionary authority to the party at issue.
  • Review Claims and Appeals Exhaustion Language: In the recent Wallace v. Oakwood Healthcare, Inc. decision, the Sixth Circuit ruled that, because a long-term disability plan did not describe any internal claims review process or remedies in its plan document, the plan did not establish a reasonable claims procedure pursuant to ERISA regulations and therefore the plan participant’s administrative remedies must be deemed exhausted. The Sixth Circuit rejected the argument that the plan document was not required to include such procedures because the procedures were detailed in a benefit denial letter. Employers may want to review their plan documents and SPDs for adequate claims and appeals language, including deadlines for filing claims, requirements to exhaust claims and appeals rules before filing a lawsuit, and statutes of limitations. Otherwise participants may be able to go directly to court without exhausting the plan’s claims and appeals process or have an open-ended period of time to sue for benefits.
  • Consider Leave-Sharing Program Best Practices: Employers often sponsor leave-sharing programs to allow employees to donate leave on a pre-tax basis to co-workers who are experiencing a medical emergency or who have been adversely affected by a major disaster. These leave-sharing programs have garnered significant attention during the COVID-19 pandemic. The IRS recently published guidance permitting employers to establish an additional type of leave-sharing program for the COVID-19 pandemic, leave-based donation programs under which employees can donate leave in exchange for employer contributions to certain charitable organizations. Employers should consider close review of applicable rules and best practices when establishing and administering leave-sharing programs. They are surprisingly complex, and improper administration and documentation can result in unintended tax and other consequences. Employers should consult with counsel when setting up any leave-sharing program. For a more detailed review of the rules and best practices for these leave-sharing programs, see our April 21, 2020 SW Benefits Update, “Two Leave-Sharing Program Options for Employers During the COVID-19 Pandemic,” and our July 20, 2020 SW Benefits Blog, “IRS Approves Additional Leave-Based Donation Programs for COVID-19 Relief.”
  • Reconsider Offering Domestic Partner Benefits: In June 2015, the Supreme Court decided Obergefell v. Hodges, which legalized same-sex marriage in all 50 states. In response to that case, many employers that offered same-sex domestic partner benefits terminated those benefits. The Human Rights Campaign has required employers to offer domestic partner benefits to both same-sex and opposite-sex couples in order for employers to score 100% on the Corporate Equality Index. Offering same-sex and opposite-sex domestic partner benefits may not only help an employer obtain a 100% score on the Corporate Equality Index, but it also may make it easier to hire younger workers, and older workers who do not want to give up Social Security survivor benefits. Now may be a good time to reconsider offering domestic partner benefits for 2021.
  • Consider Proper Treatment of Telemedicine Benefits: Telemedicine is not only an increasingly popular option, it has become a necessity for participants during the COVID-19 pandemic. Telemedicine generally involves two categories: (1) a closed network of medical providers who are trained and prepared to administer medical care electronically (e.g., by telephone, video, email, etc.) rather than face-to-face; and (2) conventional medical providers who have typically seen their patients face-to-face but have transitioned their practice to electronic communications because of the COVID-19 pandemic. As a general matter, telemedicine is highly regulated and failure to follow applicable regulations can subject employers to large excise taxes on a per-participant basis. We have previously blogged about those issues in our August 29, 2016 SW Benefits Blog, “What is Telemedicine? A Cool Benefit or a Hot Mess?” However in FAQs Part 43, the Departments provided temporary relief from certain group health plan requirements (e.g., the preventive services mandate) if a plan: (1) is sponsored by a large employer; (2) solely provides telehealth or certain remote care services; and (3) is only offered to employees (or their dependents) who are not eligible for coverage under any of the employer’s other group health plans. For more information please see our July 28, 2020 SW Benefits Update, ”Free COVID-19 Testing Extended for Another 90 Days.” Employers may want to consider how to best structure telemedicine programs to ensure compliance with ERISA, ACA, and other laws while also taking advantage of the Departments’ recent temporary relief, if applicable.
  • Forget About the Cadillac Tax: The Further Consolidated Appropriations Act, 2020 provided welcome relief to employers by repealing the Cadillac tax imposed by ACA before it ever takes effect. The Cadillac tax was a 40% excise tax on the value of “rich” health plans (i.e., those that exceed $10,200 for an individual and $27,500 for a family, indexed for inflation). The excise tax was originally scheduled to take effect for taxable years beginning after 2017, but it was repeatedly delayed by subsequent legislation. Plans can now remove the Cadillac tax from their to-do list. For more information, please see our January 22, 2020 SW Benefits Blog, “Congress Giveth and They Taketh Away – Recent Health Plan Changes.”
  • Continue to Comply with IRS Form W-2 Reporting of the Cost of Employer-Sponsored Group Health Plan Coverage: Beginning with the Form W-2 issued in January 2013 (i.e., the Form W-2 issued for the 2012 calendar year), employers have been required to report to employees the cost of their employer-sponsored group health plan coverage. This reporting is for informational purposes only and is intended to communicate the cost of health care coverage to employees. It does not change how such benefits are taxed. This requirement continues to apply for future years.
  • Distribute Revised SBCs: ACA requires employers offering group health plan coverage to provide employees with an SBC, which summarizes the health plan or coverage offered by the employer. In November 2019, DOL and HHS provided an updated SBC template, the use of which is required beginning on the first day of the open enrollment period for plan years beginning on or after January 1, 2021. This means calendar-year plans must use the new template for the fall 2020 open enrollment period for the 2021 calendar year. Information about the SBC requirement, and links to the SBC instructions and template, can be found on the DOL website. Although this is not a new requirement, the SBC is a rigid document and generally all form language and formatting must be precisely reproduced, unless the instructions allow or instruct otherwise. Therefore, employers that outsource SBC drafting to a TPA may want to review an SBC draft to make sure it complies with the new instructions before sending it to employees. Employers may also want to ensure that SBCs are provided at requisite times including open enrollment, initial or special enrollment, and upon request. Otherwise, the penalties for failure to issue SBCs can be significant. Finally, as noted in the above “Consider Health and Welfare COVID-19 Issues” paragraph, employers may want to consider if any COVID-19 testing or treatment changes must be reflected in their SBCs.
  • Provide 60-Day Advance Notice of Changes Impacting SBC: ACA requires group health plans to give participants a 60-day advance notice before making any material modification in plan benefits or coverage that is not reflected in the most recently provided SBC. This applies to both benefit enhancements and reductions that take effect mid-year. As noted above under the “Consider Health and Welfare COVID-19 Issues” paragraph, the Departments have provided some relief to this rule in response to COVID-19.
  • Update and Distribute SPDs if Needed: SPDs are required to be updated once every five years if the plan has been materially amended during the five-year period and once every ten years if no material changes have been made. Further, an updated SPD is required to incorporate all material amendments that occurred during the five-year period, even if the changes were communicated in a timely manner through SMMs. In addition to updating SPDs, employers must also distribute updated SPDs to participants and beneficiaries. Posting updated SPDs on intranet sites is not an effective method of distribution.
  • Distribute Summary Annual Report: Distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report is required to be distributed within two months following the date on which the Form 5500 was due.
  • Electronic Distribution Rules: Employers waiting for updates to the existing electronic distribution rules for health and welfare plans must continue to wait, although recent guidance might provide temporary relief.
    • COVID-19 Relief: EBSA Disaster Relief Notice 2020-01 temporarily relaxed the distribution standard for certain notices, disclosures, and other documents required by Title I of ERISA (e.g., SPDs and SMMs) in response to the COVID-19 pandemic. Specifically, Notice 2020-01 provides that an employee benefit plan and responsible plan fiduciary will not violate ERISA for a failure to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020 and 60 days after the announced end of the COVID-19 national emergency if the plan and responsible fiduciary act in good faith and furnish the notice, disclosure or document as soon as administratively practicable under the circumstances. Good faith acts include the use of electronic alternative means of communicating with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, such as email, text messages, and continuous access websites. Because the scope of this relaxed standard is unclear, employers may not want to rely on it unless absolutely necessary. Furthermore, employers who rely on electronic communications with plan participants may want to consider following up with a paper communication when it becomes administratively practicable to do so.
    • Safe Harbor for Pension Plans: On May 21, 2020, the DOL announced a final rule establishing a new electronic safe harbor for pension plans. The final rule is not available to health and welfare plans. For more details on the final rule, please see our July 15, 2020 SW Benefits Blog, “Department of Labor Issues Final Electronic Disclosure Rule.” In the meantime, employers should comply with the existing electronic distribution rules available here.
  • Reflect Cost-of-Living Increases: The IRS recently announced cost-of-living adjustments for 2021, some of which have an impact on health and welfare plans. A selection of important cost-of-living increases in the health and welfare context is provided below.
--> Scroll to see full table data
Health and Welfare Plan Dollar Limits
2017 Limit
2018 Limit
2019 Limit
2020 Limit
2021 Limit
Annual Cost Sharing Limit (self-only coverage)
$7,150
$7,350
$7,900
$8,150
$8,550
Annual Cost Sharing Limit (other than self-only coverage)
$14,300
$14,700
$15,800
$16,300
$17,100
HDHP Out-of-Pocket Maximum (self-only coverage)
$6,550
$6,650
$6,750
$6,900
$7,000
HDHP Out-of-Pocket Maximum (family coverage)
$13,100
$13,300
$13,500
$13,800
$14,000
Annual HDHP Deductible (self-only coverage)
Not less than $1,300
Not less than $1,350
Not less than $1,350
Not less than $1,400
Not less than $1,400
Annual HDHP Deductible (family coverage)
Not less than $2,600
Not less than $2,700
Not less than $2,700
Not less than $2,800
Not less than $2,800
Maximum Annual HSA Contributions (self-only coverage)
$3,400
$3,450
$3,500
$3,550
$3,600
Maximum Annual HSA Contributions (family coverage)
$6,750
$6,900
$7,000
$7,100
$7,200
Maximum HSA Catch-Up Contribution
$1,000
$1,000
$1,000
$1,000
$1,000
Health FSA Maximum
$2,600
$2,650
$2,700
$2,750
To be announced
--> Scroll to see full table data

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Snell & Wilmer | Attorney Advertising

Written by:

Snell & Wilmer
Contact
more
less

Snell & Wilmer on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.